2.3 Competitive Market Equilibrium Questionbank

Explain how excess demand or supply signals the need for price adjustment in a market economy.

Greenland, an autonomous territory of Denmark, is the world’s largest island with a population of about 56000 people. The economy relies heavily on fisheries (accounting for more than 90% of Greenland’s total exports), public sector services financed through grants from Denmark, and (increasingly) tourism. Recent explorations suggest that Greenland has untapped reserves of minerals and rare earth elements. However, high infrastructure costs and environmental considerations pose challenges to diversification.

Real GDP growth has been volatile due to changes in global demand for fish products and fluctuations in fish prices, while the population faces income inequality concerns. Recent debates in Greenland’s Parliament (Inatsisartut) focus on reforms to taxation and public spending, seeking to foster inclusive economic growth and reduce income disparities.

Table 1: Key Macroeconomic Indicators of Greenland (2018–2021)

Table 2: Fish Exports Data (2019–2021)

Table 3: Income Distribution and Taxation(2021)

Figure 1: Simplified market for Greenlandic Halibut (2021)

Prices are measured in DKK per tonne. Demand (D) and supply (S) represent domestic demand and supply. Pw1 is the initial world price of 28 000 DKK per tonne, while Pw2 is a possible world price of 30 000 DKK per tonne.

Dominica is a small island nation in the Eastern Caribbean, with a population of approximately 72 000 people. Known as the “Nature Isle of the Caribbean,” its economy depends heavily on ecotourism, banana exports, and foreign investment. Having experienced significant hurricane damage in recent years (notably Hurricane Maria in 2017), Dominica has been focusing on rebuilding infrastructure, encouraging sustainable agriculture, and diversifying tourism activities to boost economic resilience.

In 2021, tourism made up around 25 % of GDP while bananas continued to be a key export crop. The government has been working to modernize the banana industry by providing subsidies for more climate-resilient farming methods, hoping to maintain Dominica’s main export market in the region. However, fluctuations in global banana prices have affected farmers’ incomes.

Dominica’s tax system includes corporate tax at 25 %, a progressive personal income tax with top rates close to 35 %, and a value-added tax (VAT) of 15 % on most goods and services (some basic food items are zero-rated). Small firms often struggle with compliance, contributing to lower-than-expected government tax revenues.

Dominica’s income distribution shows moderate inequality, which the government aims to address by expanding social safety nets and creating job-training programs. Nonetheless, the authorities have considered further policy measures to make growth more inclusive and resilient.

Below are three tables containing recent data useful for understanding economic performance and key markets in Dominica.

Table 1: Macroeconomic Indicators for Dominica (2018–2021)

Table 2: Banana Market Data (2021)

Table 3: Income Distribution, Taxation, and Other Indicators (2021)

ECONOMIC DEVELOPMENTS IN ZIMBABWE

(1) Zimbabwe, located in Southern Africa, has historically relied on agriculture and mineral exports, especially tobacco, gold, and diamonds. In recent years, the government has initiated large-scale reforms to stabilize the economy after periods of hyperinflation and currency volatility. The country’s central bank introduced an interbank foreign exchange market in 2019 to reduce parallel market activities and attract foreign direct investment (FDI). However, investor confidence remains fragile due to concerns about policy consistency.

(2) Despite improvements in the agricultural sector, Zimbabwe continues to face high inflationary pressures, albeit at lower levels than its peak in the late 2000s. By mid-2023, annual inflation stood at 65%, compared to 100% a year earlier. The fiscal authorities have introduced partial subsidy schemes on maize, intending to make staple foods more affordable. Combined with efforts to liberalize fuel imports, these measures have had varied effects on both consumers and local businesses.

(3) The government has recently embraced expansionary fiscal policies to boost aggregate demand. Public spending on infrastructure, such as roads and energy projects, rose by 20% from the previous year. At the same time, the budget deficit grew to 8% of GDP from 6% in the prior year, reflecting the cost of infrastructure development and social programs. Critics argue that excessive public spending may crowd out private sector investment if domestic borrowing soars, while proponents highlight the importance of rebuilding essential infrastructure after decades of underinvestment.

(4) Zimbabwe’s international trade relations have also evolved. The country runs a trade deficit with many partners, importing machinery, vehicles, and consumer goods while mainly exporting primary commodities. In 2022, the trade deficit reached US$1.7 billion, underscoring the need for export diversification. The government encourages foreign investors to participate in special economic zones, granting tax incentives and relaxed import regulations for machinery. Yet bureaucratic hurdles and uncertainty about property rights can deter foreign firms from setting up in the country.

(5) In rural areas, small-scale farmers benefit from government-led programs that offer subsidized fertilizers and seeds at below-market prices. While intended to strengthen food security, these subsidies place pressure on the budget. Some economists recommend transitioning to targeted support mechanisms, emphasizing that universal subsidies may disproportionately benefit larger commercial farmers, potentially worsening income inequality between rural households.

(6) Another challenge involves the country’s exchange rate regime, with multiple official and parallel rates persisting until recently. Throughout 2022, the local currency depreciated significantly against major currencies, aggravating the cost of importing essential inputs. Remittance inflows from the Zimbabwean diaspora reached nearly US$1.3 billion in 2021, helping cushion household incomes and stabilize foreign exchange markets. However, concerns remain about the sustainability of relying on volatile external flows for balance of payments support.

(7) Looking ahead, Zimbabwe’s policymakers aim to foster economic development through a mixture of industrialization and trade reforms, while tackling inflation and balancing the national budget. The central bank has indicated that it will maintain flexible exchange rate policies alongside prudent monetary controls. Although some analysts believe these reforms can boost real GDP growth from its current 4% to around 5% or 6% in the next few years, others argue that deeper structural changes—such as stronger property rights and reduced red tape—are essential for long-term stability and economic development.

Table 1: Selected Macroeconomic Indicators (2020–2023)

*2023 data are estimates.

Table 2: Sectoral Overview of Zimbabwe (2022)